One of the local blogs I read is hburgnews.com -- if you're not already reading it, you definitely should!  One phenomenon that has been great to observe is seeing local government employees engaging in online conversations.

One recent example is on a post about Delayed Green Arrows around Harrisonburg, where a several Harrisonburg staff people explain some recent improvements in traffic engineering.  In the ensuing discussion concerns are brought forward and are then addressed by the city employees.  Then, Brad Reed (Traffic Analyst with Harrisonburg Public Works) goes on to say...

I'm excited to say that we will be finished with the new Traffic Engineering Division website in the near future. The site will go over the basics of how the city's signals are timed and coordinated and will give everyone a look at the components used to operate a signalized intersection. We would love to hear everyone's comments and suggestions, which is why the new site will also include a comment form dedicated to signal-related concerns. I encourage everyone to use the new form when it is released. In the meantime, if you would like to follow up or have any questions, please feel free to call the Public Works Department at (540) 434-5928.

Another great example of engagement by the local government is outgoing City Councilman Charlie Chenault's willingness to jump in to provide the facts or clear up misperceptions.

I appreciate you, my blog readers, who often comment and provide your feedback here --- and I recommend you also read hburgnews, and jump into the conversations happening in that forum.  It's a great way to not only know about the latest news in Harrisonburg, but also to be a part of conversations that will shape our area's future.

Here's to open, transparent, responsive local goverment!

When asked for my professional real estate opinion, I used to ask "Do you want to know what I really think?"  Or I would find myself prefacing some of my comments with "Well, if you want to know what I really think..."

Over the past six to twelve months, I have had numerous conversations with buyers, sellers, builders and developers about the current real estate market.  As such, I have dropped my prior vernacular from these conversations. 

For better or for worse, I'm telling people what I really think about our current market, or about their situation, proposal or property.  Buyers, sellers, builders and developers need to know the facts within the context of their situation or property as they make huge financial decisions.

So -- if you want to know how to make excellent buying, selling, building or development decisions, feel free to ask me -- just know that I may not always tell you what you want to hear.  (Though, I suppose I will always tell you what you should want to hear!)

Buying or selling real estate can be a complicated process at times, and questions often abound.  If you have questions about the process, or about the market, or about some other real estate related topic, feel free to leave a comment below, or e-mail me (scott@cbfunkhouser.com) or call me (540-578-0102).

Many of the topics covered on this blog are a result of questions that people like you have asked --- so feel free to step up to the mic to get your question(s) answered!

Josh posed the question of whether Realtors make extraordinary profits on home sales, and suggested I shed some light on the matter. I'd be happy to do so --- and I'll start with Josh's proposed example of a $100,000 home (though there aren't too many of those out there).

One Quick Assumption . . .
Upon the closed sale, Realtors are typically paid an amount derived from a percentage of the sale price of the property being sold. This percentage (the "real estate commission" or "brokerage fee") varies from company to company, from agent to agent, and can be negotiated. The sellers of all of the properties that I am currently marketing will pay either a 5% or 6% commission. Thus, for this example, we'll split the difference and use 5.5% as the sample brokerage fee.

At First You Would Think . . .
Many people would simply multiply the sales price ($100k) by the commission (5.5%) and assume that once I sell this fictional $100,000 home, I'd pocket $5,500. Could that be true??

"Sellers Agents" and "Buyers Agents"
The total commission that the seller pays is actually split (typically in half) between the Realtor representing the seller and the Realtor representing the buyer. While it is legal for a Realtor to represent both buyer and seller in a transaction, and many Realtors do so quite skillfully, it is not a practice that I encourage, as it can limit the representation that each party receives. As a result, and since in 95% (plus) of my transactions I am only representing one party, we will now divide the $5,500 by 2, and have $2,750 remaining.

The Company Has Costs Too
The remaining $2,750 is now split (again!) between the Realtor representing the seller (or buyer) and the company for which they work. Different companies have different arrangements as far as this split --- ranging from 50% to the Realtor to as high as 90% to the Realtor. Most companies are within the 50% to 75% range, so I'll average the limits of that range, and use 62.5% for our example. This leaves $1,719 to the Realtor. However, in my case, we pay a small percentage of each commission to Coldwell Banker Corporate (since we are a part of a national franchise), which actually leaves me with $1,616.

And Then There Are The Agent's Costs
If we are to compare a Realtors income to anyone else's income, we must next take out my business expenses. Last year (2007) my expenses were approximately 21% of my gross income. Some of these expenses are related to a single transaction (marketing costs, for example), and some are related to my overall business (Realtor association membership, MLS membership, office expenses, education/training expenses, etc.). Thus, the figure above ($1,616) is now reduced to $1,277.

Let's Extrapolate!
That final "profit" on the $100,000 sale was $1,277 --- which is 1.28% of the sale price. Thus, if all of the variables remained the same, here are some additional profit points:
$100,000 = $1,277
$185,700 = $2,377 (April 2008's median sales price)
$300,000 = $3,840 (a very nice home)
$500,000 = $6,400 (a very, very nice home)

Let's Compare Again
When we began, some might have made the assumption that I would have pocketed $5,500 on a $100k sale --- when in reality, I only profit $1,277. Along the same lines, someone selling a $300,000 home might think I would be pocketing $16,500 (wow!) --- when in reality, I only profit $3,840.

The Question At Hand
Returning to the original thought/question --- do Realtors make extraordinary profits? In my opinion, no --- in some transactions I am paid appropriately for the service, knowledge, marketing, representation, negotiation and expertise that I provided to my clients. In some transactions, I am underpaid. And in some cases, I provide such services to a buyer or seller for months, and am never compensated at all (if they do not buy or sell).

I hope this has shed some light on how compensation works in the real estate world (at least in my real estate world), and I certainly welcome other thoughts, questions, and perspectives!